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5

Measuring International

Investment by Multinational

Enterprises

Implementation of the OECD’s Benchmark

Definition of Foreign Direct Investment, 4th edition

This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed

and arguments employed herein do not necessarily reflect the official views of the OECD or of the

governments of its member countries.

This document and any map included herein are without prejudice to the status of or sovereignty over any

territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

© OECD 2015

OECD freely authorises the use of this material for non-commercial purposes. Requests for commercial use

or translation of this material should be submitted to [email protected].

The 4th edition of the OECD’s Benchmark Definition of Foreign Direct Investment

(FDI) provides the most complete and detailed guidance on the coverage, collection,

compilation, and dissemination of FDI statistics. Its widespread implementation in

2014 has greatly improved the usefulness of FDI statistics by providing more

meaningful measures of investment by multinational enterprises. It has also

improved the quality and comparability of FDI statistics across countries.

This publication explains the major changes introduced in the 4th edition of the

Benchmark Definition and assesses their impacts on the statistics. It also discusses

what we have learned about the international investment of MNEs from the new

statistics and provides general guidance on using the new statistical series. Finally, it

describes research priorities for further improving FDI statistics.

More information on international investment statistics can be found at:

www.oecd.org/investment/statistics.htm

mailto:[email protected]

http://www.oecd.org/investment/statistics.htm

Measuring International Investment by Multinational Enterprises

3

Table of Contents

Implementation of the OECD’s Benchmark Definition of Foreign Direct

Investment, 4th edition ............................................................................................ 5

FDI statistics according to BMD4 .............................................................................. 7

What’s included in FDI statistics? ......................................................................... 7

Improvements to aggregate FDI statistics .......................................................... 10

Improvements to detailed FDI statistics by partner country and by industry .... 13

Separately compiling FDI statistics for resident SPEs ..................................... 14

Flows and positions between fellow enterprises ........................................... 16

Specific recommendations for valuing FDI statistics ...................................... 19

FDI statistics collected by the OECD ....................................................................... 21

Financial flows, income, and positions by country and by industry ................... 21

Positions by ultimate investing country .............................................................. 24

Examples of how to use and interpret FDI statistics .............................................. 27

Asset/liability versus directional principle .......................................................... 27

Flows and stocks ................................................................................................. 28

Indicators ............................................................................................................ 30

Related data sets ..................................................................................................... 33

Activity of multinational enterprises statistics ................................................... 33

International mergers and acquisitions data ...................................................... 34

OECD research to further improve the measurement of foreign investment ....... 35

Capital in transit .................................................................................................. 35

Ultimate host country ......................................................................................... 35

Links between FDI statistics and other statistics on MNEs ................................. 35

5

Measuring International Investment

by Multinational Enterprises

Implementation of the OECD’s Benchmark

Definition of Foreign Direct Investment, 4th edition

Multinational enterprises (MNEs) are a key channel of globalisation. They serve as

the backbone of many global value chains by linking and organizing production

across countries and are an important channel for exchanging capital, goods and

services, and knowledge across countries. Foreign direct investment (FDI) is

necessary for the creation of an MNE. Therefore, reliable and high quality FDI

statistics are necessary for policy-making and for tracking globalisation. In 2008,

the OECD published the 4th edition of its Benchmark Definition of Foreign Direct

Investment (BMD4). The implementation of the BMD4 guidelines greatly improves

the quality of foreign direct investment (FDI) statistics by providing more

meaningful measures of FDI. Although FDI statistics include some transactions

that might not meet the definition of an MNE, such as investments in real estate,

investments by MNEs dominate FDI statistics. Thus, the BMD4 statistics will

inform the analyses of global value chains and of globalisation more generally.

This is why the full implementation of BMD4 is such an important event, not just

for the statistics community but also for policy makers.

FDI is defined as the establishment of a lasting interest in and significant degree

of influence over the operations of an enterprise in one economy by an investor

in another economy. Ownership of 10% or more of the voting power in an

enterprise in one economy by an investor in another economy is evidence of

such a relationship. FDI statistics cover all cross-border transactions and positions

between entities in a foreign direct investment relationship. There are three main

components to FDI statistics: 1) financial flows, which capture debt and equity

investments between related parties in a specific period; 2) income, which

represents the return on equity and debt investment to the direct investor in a

specific period; and 3) positions, which are the value of the accumulated direct

investment at a specific point in time—it is also referred to as the stock of FDI.

The financing structures of MNEs have gotten more complex over time in

response to several factors, including the need to manage global production

networks and the desire to minimize tax and regulatory burdens. This complexity

can distort FDI statistics in a couple of ways. First, when MNEs channel


6

investments through several countries, FDI flows are inflated

because each flow into and out of each country is counted

even if the capital is just passing through. Second, it obscures

the ultimate source and destination countries of FDI. The new

recommendations improve the statistics on a directional

basis by recommending that the statistics be compiled

excluding resident Special Purpose Entities (SPEs). SPEs are

entities whose role is to facilitate the internal financing of the

MNE but that have little or no physical presence in an

economy. By excluding such entities from their FDI statistics,

countries have a much better measure of the FDI into their

country that is having a real impact on their economy. BMD4

also recommends use of the extended directional principle to

better capture the direction and degree of influence of the

investment and to remove some double-counting in the FDI

statistics when debt passes through affiliated entities. Finally,

BMD4 recommends that countries compile inward investment

positions according to the Ultimate Investing Country (UIC) to

identify the country of the investor that ultimately controls the

investments in their country.

BMD4 provides recommendations for compiling both

aggregate FDI statistics and detailed statistics by partner

countries and by industry. The new recommendations result in

more meaningful measures of FDI as well as in general

improvements to the statistics. At the aggregate level, BMD4

aligns with the recommendations in the IMF’s Balance of

Payments and International Investment Position Manual, 6th

edition (BPM6) for recording FDI statistics according to the asset/liability

principle. This recommendation makes the FDI statistics included in the balance

of payments (BOP) and international investment position (IIP) accounts more

comparable to other macroeconomic statistics. This presentation of aggregate FDI

statistics enables BOP analysis such as examining the impact of FDI on a country’s

current account. BMD4 and BPM6 recommend that detailed statistics by partner

country and by industry be recorded according to the directional principle, which

shows the direction and degree of influence of the foreign direct investment. The

directional principle is the most meaningful way of compiling FDI statistics for

understanding and analysing foreign direct investment and the actions of MNEs.

Asset/liability principle:

records FDI statistics

based on whether it

represents assets or

liabilities to the reporting

economy.

Balance of Payments

(BOP): records

transactions between

residents of a country and

the rest of the world.

International Investment

Position (IIP): records

the value of claims (or

assets) of residents of an

economy on the rest of

the world and their

liabilities to the rest of the

world.

Directional principle:

records FDI statistics

based on whether it

represents investment

abroad by parents in the

reporting economy

(outward investment) or

investment by foreign

parents in the reporting

economy (inward

investment).


7

FDI statistics are compiled by countries and represent the investments of direct

investors resident in their economies to foreign countries and investment by foreign

residents in their economy. Therefore, the concept of residency is very important

to compiling and understanding FDI statistics. The residence of an entity is the

economic territory where it has its center of predominant economic interest; that

is, where it has the strongest connection. For an enterprise, this is where it is

engaged in a significant amount of production of goods or services. While an entity

may have connections to more than one economy, its residency is attributed to only

one economy. SPEs are entities without a significant physical presence, and their

residence is assigned to the jurisdiction in which they are incorporated.

Unincorporated entities are assigned residence where they have the most

significant economic presence, either in terms of employment or assets.

This document will provide an explanation of the improvements to the statistics

introduced in BMD4 and an assessment of their impact on the statistics. It will

also describe the new statistical series to be compiled and provide general

guidance on using the new statistical series. It also briefly discusses other

statistics on MNEs and future research to further improve FDI statistics.

FDI statistics according to BMD4

BMD4 provides new recommendations for defining the universe of entities

covered by FDI statistics, for measuring aggregate—that is, total or world-wide—

FDI statistics, and for measuring detailed FDI statistics by partner country and by

industry.

What’s included in FDI statistics?

BMD4 recommends a new method for determining the entities that are included

in FDI statistics. This method, called the Framework for Direct Investment

Relationships (FDIR), identifies all of the enterprises over which an investor has

significant influence under the 10% voting criterion. Figure 1 is an example of the

structure of an MNE and will be used to illustrate the different relationships and

entities included in a direct investment relationship. It also defines some terms

that will be used throughout this report. Each of the boxes represents a different

entity, the arrows indicate the direction of ownership, and the accompanying

percentages show the share of voting equity owned by the direct investor.


8

A

B

C

E D

F

Economy 1

Economy 2

Economy 3

Economy 4

Economy 5

100%

100% 30%

40%

20%

Entity A is a direct investor in

two direct investment

enterprises: B and C. A is said to

have a direct ownership interest

in B and C and is called a parent;

B and C are called affiliates of A.

A controls B because it owns

more than 50% of the voting

equity in B, but A only has

influence on C because it owns

50% or less of the voting equity

in C. While a parent is usually a

business enterprise, it can be

any institutional unit, such as

an individual, a government, a

non-profit institution, or a

trust. In contrast, affiliates

must be business entities—either corporations or quasi-corporations. A quasi-

corporation is an unincorporated business that operates as if it is separate from

its parent, such as a branch.

B and C are also parents. D and E are affiliates of B, and they are also affiliates of A

through A’s control of B. Similarly, F is an affiliate of C. However, it is not an

affiliate of A as the ownership tie between F and A is considered to be too weak—

A only has influence on C, which, in turn, only has influence on F. A is said to have

an indirect ownership interest in D and E.

There is no direct investment relationship between B and C because neither one

owns any voting power in the other. However, they are called fellow enterprises

because they are controlled by the same direct investor. Even though there is no

direct investment relationship between the two, any transactions between them

are relevant to direct investment and included in FDI statistics because such

transactions are likely to result from the influence that A has on both of their

operations. There are other examples of fellow enterprises in the figure, including

D and C, D and E, and E and C. However, F is not a fellow of any other entity in

figure 1 as it does not have a direct investor in common with any of the other

entities. The FDIR fully captures these horizontal relationships by identifying all

enterprises related to a particular enterprise.

Figure 1. Illustration of the ownership structure of an MNE


9

Entity A is the ultimate controlling parent (UCP) of affiliates B, D, and E; A is also

the UCP of C if no other single entity owns a majority share of C. The UCP is found

by moving up the ownership chain from the immediate investor until an entity

that is not controlled—that is, owned more than 50%—by any other entity is

reached. Entity C is the UCP of F assuming that no other direct investor owns a

majority share of F because C is not controlled by A. Economy 1, the country of

residence for entity A, is the ultimate investing country (UIC) for affiliates B, C, D,

and E. Economy 3 is the UIC of affiliate F.

Box 1 provides a description of other changes and clarifications to the

transactions and entities covered by FDI statistics in BMD4.

Box 1. Other changes and clarifications to the coverage of FDI statistics

BMD4 made additional recommendations to clarify the transactions and entities included in

direct investment. The first of these was to exclude all debt between financial intermediaries,

such as banks, from direct investment. Previously, permanent debt, defined as debt that

represented a lasting interest, was included in direct investment while all other debt was

excluded because this debt was more strongly linked to the role of parents and affiliates as

financial intermediaries than to their direct investment relationship. This change recognised

the practical difficulties of assessing the permanence of debt.

The next change was to expand coverage to include investments in and by collective

investment institutions (CIIs). CIIs include such entities as mutual funds, private equity funds,

and hedge funds. A CII can be either a direct investment enterprise, if an investor in one

economy acquires at least 10% of the voting power in a CII, or it can be a direct investor if it

acquires at least 10% of the voting power in a non-resident enterprise. Investments by and into

CIIs are included in direct investment if the FDI criteria are met, but this phenomenon bears

further watching as the nature of and motivations for direct investments of CIIs may differ from

MNEs.

Finally, BMD4 clarifies that non-profit institutions can be direct investors. They cannot,

however, be direct investment enterprises because their non-profit status does not allow them

to be a source of income, profit, or other financial gain from the units that establish, control, or

finance them. Examples of non-profit institutions that could be considered as direct investors

include non-profit colleges, universities, or hospitals that acquire voting power in a non-

resident business enterprise.

Impact on statistics. The exclusion of permanent debt between financial intermediaries will

reduce FDI statistics while the inclusion of CIIs and non-profit institutions as direct investors will

increase FDI statistics.


10

Improvements to aggregate FDI statistics

BPM6 and BMD4 recommend that aggregate FDI statistics,

which are included in BOP and IIP accounts, be presented

according to the asset/liability principle rather than the

directional principle as has been the recommendation in

previous editions of these international guidelines. On an

asset/liability basis, direct investment statistics are organised

according to whether the investment relates to an asset or a

liability for the reporting country. For example, a country’s

assets include equity investments by parent companies

resident in that country in their foreign affiliates because

those investments are claims that they have on assets in

foreign countries. Similarly, a country’s liabilities include

foreign parents’ equity investments in affiliates resident in

that country because those investments represent claims

that foreigners have on assets in the reporting country. The

asset/liability presentation does not show the direction of

influence as the directional presentation does.

Under the directional presentation, the direct investment

flows and positions are organised according to the direction

of the investment for the reporting economy—either

outward or inward. So, for a particular country, all flows and

positions of parents resident in that economy are shown

under outward investment, and all flows and positions for

affiliates resident in that economy are shown under inward

investment. Figure 2 shows the building blocks used to

construct the asset/liability and directional presentation of

the FDI positions; the presentations of flows would follow

the same pattern. The figure shows that the building blocks

used are the same—both presentations cover the same flows and positions—but

they are organised and combined differently.1

1 This discussion focuses on flows and positions between affiliates and parents. The

treatment of flows and positions between fellow enterprises is discussed below in the section “Flows and Positions between Fellow Enterprises”.


records FDI statistics based

on whether it represents

assets or liabilities to the

reporting economy.

Balance of payments

(BOP): records transactions

between residents of a

country and the rest of the

world.

International investment

position (IIP): records the

value of claims (or assets)

of residents of an economy

on the rest of the world and

their liabilities to the rest of

the world.




investment abroad by

parents in the reporting

economy (outward

investment) or investment

by foreign parents in the

reporting economy (inward

investment).

Fellow enterprises:

enterprises that have no

direct investment

relationship themselves but

have a direct investor in

common.


11

Under the asset/liability presentation, the asset side includes assets of both

resident parent companies and of resident affiliates, and the liability side includes

all liabilities of resident parents and resident affiliates. In contrast, the outward

investment position consists only of positions of resident parents, and the inward

investment side consists only of positions of resident affiliates. The second

difference is in the treatment of reverse investment. Reverse investment is when

an affiliate invests in its parent. Under the directional presentation, reverse

investment is subtract-

ed to derive the

amount of total out-

ward or inward invest-

ment of the reporting

country.

So, if a resident parent

borrows money from

one of its foreign

affiliates, this is

subtracted in calculat-

ing the reporting

country’s outward

investment because it

reduces the amount of

money that that

country’s parents have

invested in their

foreign affiliates.

Similarly, if a resident

affiliate lends money

to its foreign parent, this is subtracted when calculating inward investment

because it reduces the amount of money that the foreign parent has invested in

that country. In contrast, all assets and all liabilities are simply added up under the

asset/liability presentation. While reverse equity investment is to be treated the

same way as reverse debt investment, it is so rare that most of the difference

between the two presentations is due to differences in the treatment of reverse

debt investment.

Figure 2. Asset/liability presentation vs the directional presentation of FDI positions

FDI ASSETS

equal

FDI LIABILITIES

equal

INWARD FDI

equal

OUTWARD FDI

equal

Resident parents’ equity in and

lending to foreign affiliates

Resident affiliates’ equity in

and lending to foreign parents

plus

Foreign parents’ equity in and

lending to resident affiliates

Foreign affiliates’ equity in and

lending to resident parents

plus

Resident parents’ equity in and

lending to foreign affiliates

Foreign affiliates’ equity in and

lending to resident parents

minus

Foreign parents’ equity in and

lending to residents affiliates

Resident affiliates’ equity in

and lending to foreign parents

minus


12

The change to recording aggregate FDI statistics on the asset/liability basis was

recommended to make FDI statistics consistent with other macroeconomic

statistics in general and with the statistics for other functional categories of

investment in the BOP and IIP statistics.2 This change in measurement facilitates

macroeconomic analyses, such as examining the composition and size of a

country’s liabilities and assets to assess its vulnerability to crises. By providing

consistent information on the composition and size of assets and liabilities by

functional category of investment (for example, direct investment or portfolio

investment) and by

instrument (for example,

equity or debt), a

country’s IIP provides

important insights into

how vulnerable its

economy is to external

market conditions. For

example, assessing the

share of total debt

liabilities in direct

investment is important

because the returns to

creditors in direct

investment depend on

the performance of the

debtor. In contrast, the

returns to creditors on

debt liabilities in

portfolio investment do

not depend on the

performance of the

debtor but are required

even if the debtor is in

difficulty, and, hence,

pose a greater risk to the

2 There are five functional categories of investment in the BOP and IIP statistics: direct investment,

portfolio investment, reserve assets, financial derivatives, and “other” investment (which consists mostly of deposits and loans).

Figure 3: Comparison of FDI Stocks Recorded under the Asset/Liability and Directional Principles

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010 2011 2012 2013

Bill

ion

s o

f U

S$

Assets Outward investment

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010 2011 2012 2013

Bill

ion

s o

f U

S$

Liabilities Inward investment

Figure 3. Comparison of FDI stocks recorded under the asset/liability and directional principles

Source: OECD International Investment Statistics Database


13

economy. That is, the creditor in a direct investment

relationship is likely to be more patient because of their

relationship with the debtor.

Impact on statistics. Aggregate FDI statistics on an

asset/liability basis will generally be higher than those under

the directional principle because reverse investment is not

subtracted as it is in the statistics on a directional basis

(Figure 3). The size of the difference between the two sets of

statistics will depend on the amount of reverse investment.

Aggregate FDI statistics on the asset/liability basis are

available from the OECD and the IMF. The extension of the

directional principle to fellow enterprises introduced in

BMD4 (and described in the next section) may lead to even

more significant differences between the two principles.

Improvements to detailed FDI statistics by

partner country and by industry

While the presentation on an asset/liability basis is

appropriate for macroeconomic analyses, it is not

appropriate for studying the nature and motivations of

foreign direct investment. For example, it is not useful for

identifying the source countries of direct investment in a

particular country or for assessing the access to specific foreign markets by direct

investors in that country. The directional principle is most appropriate for these

types of analyses and, thus, both BPM6 and BMD4 recommend that statistics by

industry and by partner be shown on a directional basis. The statistics classify the

direct investment as either outward—a direct investor in the reporting economy

has an investment abroad—or inward—a foreign direct investor has an

investment in an affiliate located in the reporting economy.

BMD4 makes two major recommendations to improve the statistics on a

directional basis that more accurately measure the degree and direction of

influence. The first recommendation is to compile the FDI statistics for direct

investment passing through special purpose entities (SPEs) resident in the

economy separately from the FDI statistics passing through operating affiliates in

the economy. The second recommendation is to extend the directional principle

to loans between fellow enterprises.



on whether the FDI

transactions and positions

represent investment abroad

by parents in the reporting

economy (outward




investment).

Special purpose entity

(SPE): an entity with little or

no physical presence in the

country but that do provide

services to the MNE, such

as holding assets and

liabilities or raising capital.

Fellow enterprises:


direct investment



common.


14

Box 2 provides a description of other changes to the directional basis.

Separately compiling FDI statistics for resident SPEs

MNEs often use SPEs in their ownership structures. SPEs are entities that have

little or no employment, physical presence, or operations in a country but do

provide services to the MNE, such as holding assets and liabilities or raising

capital. While there is no strict definition of an SPE, an enterprise is usually

considered to be an SPE if it has the following characteristics:

The enterprise is a legal entity, formally registered with a national authority and subject to fiscal and other legal obligations in the economy in which it is resident;

The enterprise is ultimately controlled by a non-resident parent, either directly or indirectly;

The enterprise has few or no employees, little or no production in the host economy, and little or no physical presence in the host economy;

Almost all the assets and liabilities of the enterprise represent investments in or from other countries; and

The core business of the enterprise is group-financing and holding activities while managing and directing play only a minor role.

Examples of SPEs include brass plate companies, financing subsidiaries, conduits,

holding companies, shelf companies, and shell companies.

Box 2. Other changes to the directional basis

BMD4 makes two clarifications that improve the statistics on a directional basis.

It clarifies that the debtor/creditor principle should be used as the basis for the geographical

allocation of FDI statistics rather than the transactor principle. Under the debtor/creditor

principle, claims and liabilities are recorded according to the country of the party that actually

has the financial claim or liability. In contrast, under the transactor principle, the claims or

liabilities are allocated to the country of the entity involved in settling the transaction, which

could differ from the country of the parents or affiliates undertaking the transaction.

It recommends that FDI statistics be allocated to the industry of the affiliate rather than the

industry of the parent. This recommendation provides information on the industries that are

attracting FDI.


15

Figure 4: Impact of Resident SPEs on Inward Stocks for Selected Countries, 2014 or most recent year available

BMD4 recommends that countries compile their FDI statistics excluding resident

SPEs, and, then, separately for resident SPEs. This recommendation provides a

more meaningful measure of direct investment into and out of an economy by

removing FDI that involves funds simply passing through the economy via SPEs

on their way to other destinations. Such funds—also called pass-through capital

or capital-in-transit—distort the country patterns of FDI statistics and cause

double-counting in the statistics. For the country hosting the SPEs, this

recommendation improves the measurement of FDI by excluding inward FDI

that has little or no real impact on their economies and by excluding outward

FDI that did not originate from their economies.

Impact on statistics. Figure 4 provides an example of the impact of SPEs on the

statistics of the OECD countries that reported their investment stocks separately

for resident SPEs at

the end of 2014 (or

the most recent year

available). The figure

shows the portion of

inward investment

stocks attributable

to resident SPEs.

The role played by

SPEs varies sig-

nificantly across

countries. It is not

surprising that the

four countries where

resident SPEs ac-

count for the largest

share of investment

are the four that

have been reporting their FDI statistics excluding resident SPEs for some time.

SPEs account for more than 90% of FDI into Luxembourg, and around 80% of FDI

into the Netherlands. While lower, SPEs account for more than half of the FDI into

Hungary and more than a third of the FDI into Austria.

Figure 4. Impact of resident SPEs on inward stocks for selected countries, 2014 or most recent year available



16

Of the countries with new reporting excluding resident SPEs, resident SPEs

account for more than a third of investment in Iceland, and, so, are very

important in explaining FDI in that country. SPEs play

smaller, but still significant, roles in investment for Spain,

Portugal, Denmark, and Sweden, accounting for 14% to 8%

of investment. On the other hand, SPEs resident in Korea,

Chile, Norway, and Poland account for 5% or less of

investment.

Even in countries where SPEs do not play a significant role in

FDI currently, it is useful to be able to identify resident SPEs

in the statistics so that their role in FDI can be monitored. By

their nature, SPEs can be formed easily and can grow

rapidly. In addition, SPEs can have large transactions in a

specific period that can distort FDI flows due to their role

within the MNE of providing financing or holding assets and

liabilities. By compiling FDI statistics that exclude resident

SPEs, FDI statistics are not overstated by including funds

that are simply being channeled through the SPEs, are easier

to interpret for policy-making and other purposes, and

provide a better measure of FDI that is likely to have an economic impact in the

host economy. Finally, it can be useful to separately identify FDI statistics for

resident SPEs even if they do not play a significant role in overall investment

because investment into resident SPEs might not follow the patterns of

investment into non-SPEs (also called operating affiliates). For example, if there is

disinvestment from SPEs, inward FDI will be lower than if they are excluded. In

this case, inward investment into operating affiliates would be higher than the

statistics indicate.

Flows and positions between fellow enterprises

Even though there is no direct investment relationship between fellow

enterprises, transactions and positions between fellows are relevant to FDI

statistics because such transactions likely resulted from the influence of their

common direct investor. BMD4 recommends extending the directional principle

to flows and positions between fellow enterprises to better reflect the direction

of influence. BMD3 called for recording lending by a resident fellow enterprise to

a foreign fellow under outward investment and borrowing by a resident fellow

enterprise from a foreign fellow under inward investment. However, this

Fellow enterprises:


direct investment



common.



on whether the FDI

transactions and positions

represent investment

abroad by parents in the

reporting economy (outward




investment).


17

treatment did not accurately reflect the direction and degree of influence exerted

by resident and non-resident direct investors in the reporting economy. For

example, a resident fellow did not achieve any influence over a foreign fellow if it

made a loan to that foreign fellow—the influence remained with the direct

investor common to both fellows. So, if the direct investor is not resident in the

economy, such loans should not be recorded as outward investment. Similarly, a

foreign fellow did not achieve any influence over a resident fellow by extending a

loan to it—the influence remained with the direct investor common to the

fellows.

In practice, some countries did not follow the recommended treatment in BMD3

but instead recorded flows and positions between fellow enterprises according to

the residence of the direct investor common to the fellows. So, if the direct

investor was resident in the reporting economy, lending and borrowing by

resident fellows was treated as outward investment, and, if the direct investor

common to both fellows was a non-resident, lending and borrowing by the

resident fellow was treated as inward investment. Other countries covered fellow

enterprises in their direct investment statistics only partially or not at all.

Under BMD4, the recording of flows and positions between fellow enterprises in a

reporting economy depends on the residence of the ultimate controlling parent

(UCP) of the fellow enterprise because it is the UCP that ultimately controls the

transactions of the fellow. While this treatment applies to both equity and debt

investments between fellows, equity investments are rare so it is debt that has

the biggest impact on the statistics. Figure 5 summarizes the treatment of loans

between fellow enterprises when the directional principle has been extended to

Figure 5. Recording of loans between fellow enterprises on a

directional basis

UCP is resident UCP is NOT resident

Fellow enterprise

makes a loan

increase in outward

investment

decrease in inward

investment

Fellow enterprise

receives a loan

decrease in outward

investment

increase in inward

investment

Residence of the Ultimate Controlling Parent

(UCP)

Dir

ect

ion

of

the

loan


18

them. If the UCP of the fellow enterprise is resident in

the economy, then loans by and to the fellow enterprise

are treated as outward investment. Any loan from a

fellow enterprise to a fellow enterprise resident in

another economy is treated as an increase in outward

investment by the reporting economy because it

represents an increase in the influence that a resident

direct investor (the UCP) has on the direct investment

enterprise in another economy. Similarly, if the fellow enterprise receives a loan,

it reduces outward direct investment just as it would if the UCP had received a

loan because such investment reduces the total amount the resident direct

investor—the UCP—has invested abroad.

If the UCP is not resident in the economy, then flows and positions are treated

as inward investment. If the fellow enterprise makes a loan to a fellow in another

country, that is treated as a reduction in inward investment to the reporting

economy as funds that flowed into the reporting economy from the foreign UCP

have now flowed to another country, reducing the amount of foreign investment

in the reporting economy. It should not be treated as outward investment as

making a loan to a fellow enterprise in another country does not give the resident

fellow any influence over the operations of the fellow in the other country;

instead, it is the UCP that still has the influence. If the fellow resident in the

reporting economy receives a loan from a fellow in another country, it increases

inward investment as the non-resident UCP’s influence in the reporting economy

has increased.

The recording of transactions of fellow enterprises differs between the

asset/liability and directional presentations. Under the asset/liability

presentation, all equity and debt investments made by resident fellows are

recorded as assets, and all equity and debt investments received by resident

fellows are recorded as liabilities. The direction of influence does not matter. In

contrast, under the directional presentation, the direction of influence does

matter. It is determined by the residency of the UCP of the resident fellow

enterprise because that is the entity that ultimately controls the transactions of

the fellow enterprise. If the UCP is resident in the reporting economy, all

transactions and positions of resident fellow enterprises are treated as outward

investment, and reverse investment is subtracted in calculating total outward

investment. Similarly, if the UCP is non-resident in the reporting economy, all

Ultimate controlling parent

(UCP): the entity proceeding

up the affiliate’s ownership

chain that is not controlled

by another entity (that is,

owned more than 50%).


19

transactions and positions of resident fellow enterprises are treated as inward

investment, and reverse investment is subtracted in calculating total inward

investment.

Impacts on statistics. Extending the directional principle to flows and positions

between fellow enterprises will generally reduce outward and inward FDI

statistics for countries that followed the guidance in BMD3. For countries that

have significant numbers of fellow enterprises that loan money and are

implementing a change in their treatment, the impact can be quite significant.

Table 1 provides some examples. The impact ranges from a 10% reduction in the

outward stock of Finland at the end of 2008 to a 67% reduction in the inward

stock of Belgium at the end of 2009.

It is not possible to assess the impact on the statistics for countries that move

from recording flows and positions between fellow enterprises according to the

residence of the direct investor to recording them according to the residence of

the UCP. However, for countries with little round-tripping, the impact would be

expected to be small because the immediate investor and the UCP would both be

foreign residents. For countries that begin to cover the transactions between

fellow enterprises, the impact would depend on the size and direction of loans

between fellows.

Table 1. Examples of impact of extending the directional principle to

the recording of loans between fellow enterprises (€ billions)

Asset/liability

principle

(BMD3)

Directional

Principle

(BMD4)

Asset/liabilit

y principle

(BMD3)

Directional

Principle

(BMD4)

Belgium, at end of 2009 410.7 135.5 530.8 255.6

Finland, at end of 2008 60.8 51.7 87.6 78.5

France, at end of 2011 752.1 463.4 1,234.6 948.9

Inward Stock Outward Stock

Sources: The Central Bank of Belgium, the Central Bank of Finland, and the Banque de France.


20

Specific recommendations for valuing FDI statistics

BMD4 and BPM6 both recommend market value as the conceptually appropriate

valuation for direct investment stocks and flows, as had previous editions of the

guidelines. Market value is recommended because it places all assets at current

prices and, thus, promotes consistency in the values of assets of different vintages

and consistency in the value of stocks and flows across countries. However, it is

difficult to produce market values of FDI positions because the equity of many

direct investment enterprises is not listed. Often the only information available to

compilers is the book value available on either the books of the direct investor or

the direct investment enterprise. Thus, it is necessary to estimate market values for

unlisted equity. Unlike previous guidelines, BMD4 makes specific recommendations

for calculating market values of FDI stocks that should lead to making market value

statistics more widely available and more comparable across countries.

Impact on the statistics. Figure 6 provides an example of the difference between

the book value and market value of FDI stocks for Canada. Market values

generally exceed book values as the value of investments tends to rise over time,

but they are more volatile. As can be seen at the end of 2008, the market value of

the positions fell while the book values continued to rise. In addition, while the

outward stock measured at book value consistently exceeds the value of the

inward stock measured at book value, this is not the case for the stocks measured

as market value.

Figure 6: Values of Inward and Outward Stocks under Different Valuations: Canada

0

200000

400000

600000

800000

1000000

1200000

1400000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bill

ion

s o

f U

S$

Outward stock at market value Outward stock at book value

Inward stock at market value Inward stock at book value

Figure 6. Values of inward and outward stocks under different valuations:

Canada



21

FDI statistics collected by the OECD

Financial flows, income, and positions by country and by

industry

BMD4 recommends that FDI financial and income flows and positions (or stocks)

be presented by partner country and by industry on a directional basis. For each

series, the statistics should be presented for all entities and excluding resident

SPEs if SPEs are relevant to the reporting economy. The statistics excluding SPEs

provide more meaningful measures of investment to and from countries that host

SPEs by eliminating capital passing through these entities. Inward investment

statistics excluding resident SPEs will capture investment that is more likely to

have a meaningful impact on the host economy and to better identify the

countries that are investing in operating affiliates in the host economy. Outward

investment statistics excluding resident SPEs will more accurately capture

investment originating in the reporting economy and its destinations.

The attribution by partner country should be to the immediate partner country.

The attribution by industry should be according to the industry of the direct

investment enterprise—that is, of the affiliate—and should be based on

International Standard Industrial Classification (ISIC) Revision 4. Table 2 provides

an example of some of the detailed partner country data disseminated by the

OECD. Table 3 provide an example of the detailed statistics by industry

disseminated by the OECD.

The OECD disseminates its FDI statistics through an on-line database and through

bi-annual, annual and periodic publications. A new database to accommodate the

new statistical series available from BMD4 and breaks in series was launched in

March 2015. The on-line database includes all of the standard and supplemental

series collected by the OECD. In addition, it contains public queries that can be

used to generate standard tables. These tables enable comparisons across

countries, highlight important aspects of FDI, and help users access the data. The

OECD publishes FDI in Figures—its newsletter summarizing recent developments

in FDI—in April and October. FDI statistics are also included in many regular and

ad hoc OECD publications.


22

All

resident

units

Resident

SPEs

Resident

Operating

Units

(Non-SPEs)

All

resident

units

Resident

SPEs

Resident

Operating

Units

(Non-SPEs)

WORLD 2933 -3667 6600 -1412 -2900 1488

OECD 7969 1426 6543 -1949 -2890 941

Australia 4 0 4 0 0 0

Austria 1052 0 1052 260 0 260

Belgium -178 0 -178 66 0 66

Canada 21 0 21 2 0 2

Chile 4 0 4 1 0 1

Czech Republic 21 0 21 114 0 114

Denmark -349 0 -349 354 0 354

Estonia -4 0 -4 -1 0 -1

Finland 140 0 140 4 0 4

France 240 -490 730 54 0 54

Germany 2537 2 2535 248 0 248

Greece -251 0 -251 0 0 0

Hungary 31 -3 33 70 0 70

Iceland -37 0 -37 0 0 0

Ireland 738 0 738 -2 0 -2

Israel 8 0 8 32 0 32

Italy -625 0 -625 -6 0 -6

Japan -76 0 -76 18 0 18

Korea 178 0 178 -6 0 -6

Luxembourg -2448 -2295 -153 -2841 -2187 -655

Mexico -1 0 -1 3 0 3

Netherlands 822 88 734 -244 -402 158

New Zealand 0 0 0 0 0 0

Norway 319 0 319 -25 0 -25

Poland 0 0 0 0 0 0

Portugal 131 0 131 -68 0 -68

Slovakia 80 0 80 38 0 38

Slovenia -9 0 -9 1 0 1

Spain 181 0 181 -199 0 -199

Sweden -664 0 -664 -398 0 -398

Switzerland 1269 -188 1457 15 -301 316

Turkey 127 0 127 -12 0 -12

United Kingdom 4441 3469 971 432 0 432

United States 270 843 -573 144 0 144

Partner country

Inward investment Outward investment

Table 2. FDI financial flows by partner country for Poland, 2013

(US millions)



23

Outward investment

All

resident

units

Resident

SPEs

Resident

Operating

Units

(Non-

SPEs)

All

resident

units

Resident

SPEs

Resident

Operating

Units

(Non-

SPEs)

All industries 6083 30 6054 31488 0 31488

Agriculture, forestry and fishing 8 0 8 1 0 1

Mining and quarrying 4 0 4 3003 0 3003

Manufacturing 2475 286 2189 12936 0 12937

Electricity, gas, steam and air conditioning

supply73 0 73 262 0 262

Water supply; sewerage, waste management and

remediation activities3 0 3 27 0 27

Construction -2 0 -2 -334 0 -334

Wholesale and retail trade; repair of motor

vehicles and motorcycles1325 0 1325 5333 0 5333

Transportation and storage 392 -1 393 -18 0 -18

Accommodation and food service activities 173 -12 185 246 0 246

Information and communication 139 -8 147 392 0 392

Financial and insurance activities 1851 367 1484 6256 0 6256

Real estate activities -80 -35 -44 2101 0 2101

Professional, scientific and technical activities -480 -567 87 254 0 254

Administrative and support service activities 158 0 158 1003 0 1003

Public administration; activities of households

and of extraterritorial organisations0 0 0 0 0 0

Education 3 0 3 9 0 9

Human health and social work activities 43 0 43 23 0 23

Arts, entertainment and recreation -3 0 -3 -20 0 -20

Other service activities -1 0 -1 14 0 14

Private real estate activities 0 0 0 0 0 0

Industry

Inward investment

Table 3. FDI financial flows by industry for Korea, 2013

(US millions)



24

Positions by ultimate investing country

To capture another important aspect of direct investment, BMD4 recommends

reporting inward positions by ultimate investing country (UIC). This presentation

better captures where the investment in a country is coming from. These statistics

show the country of the direct investor who ultimately controls the investment

and, thus, bears the risks and reaps the rewards of the investment. This

presentation can result in substantial changes in the distribution of inward

positions by country and provides information on the countries of the direct

investors that ultimately control the foreign investments in the reporting

economy. Importantly, the presentation by UIC matches the recommended

presentations of other statistics on the activities of MNEs, including Activities of

Multinational Enterprises (AMNE) statistics (these closely related data are

discussed below in the section “Related data sets”).

The ultimate investor is identified by proceeding up the immediate direct

investor’s ownership chain until an enterprise is reached that is not controlled by

another entity (that is, more than 50% of the voting power is not owned by

another entity). If there is no enterprise that controls the immediate direct

Figure 7. Comparison of inward positions by immediate investing country and ultimate investing country for France at end-of-year 2012

(US millions)



25

investor, then the immediate direct investor is the ultimate investor. To convert

from the standard presentation by immediate investing country, the entire FDI

position attributed to the immediate direct investor is moved from its country to

the country of the ultimate investor.

Unlike the presentation by immediate direct investor, the presentation by UIC can

show inward investment controlled by investors in the reporting economy; this is

inward FDI resulting from round-tripping. Round-tripping is when funds that have

been channelled abroad by resident investors are returned to the domestic

economy in the form of direct investment. It is of interest to know how important

round-tripping is to the total inward FDI in a country because it can be argued that

round-tripping is not genuine FDI into an economy.

Figure 7 gives an example of the changes in the country distribution of inward

investment when presenting statistics by country of UIC instead of the immediate

partner country for France. On the UIC basis, the United States is a much more

important investor in France than it appears when presented by immediate

partner country. Indeed, the inward stock of the United States increases from USD

79.6 billion to USD 142.1 billion. Much of this increase comes from Luxembourg

Figure 8. Comparison of inward positions by immediate investing country and ultimate investing country for Estonia at end-of-year 2013

(US millions)



26

and the Netherlands; the inward investment stocks from

these countries drops considerably, indicating that

investors from the United States hold many of their

affiliates in France indirectly, through affiliates in

Luxembourg and the Netherlands. Investors in other

countries also likely hold operations in France indirectly

through affiliates in these countries. According to the UIC

presentation, French investors are the 8th largest source of

FDI into France. As a matter of fact, they replace Japan in

the top ten sources of FDI when the statistics are

presented according to the UIC rather than by immediate

partner country. While this indicates there is some round-

tripping of FDI in France, the French position still accounts

for less than 4% of the total inward investment position in

France.

Figure 8 gives an example of the changes in the country

distribution of inward investment when presenting

statistics by country of UIC instead of the immediate

partner country for Estonia. On the UIC basis, Estonia

becomes the second largest source of investment in

Estonia, indicating that round-tripping is common in

Estonia. Given that Sweden, Finland, the Netherlands,

Russia, and Norway become less important as sources of

investment when measured according to the ultimate

investor, it appears that some of the round-tripping from

Estonia is going through some or all of these countries.

Other countries that become less important as sources of

FDI when measured on the UIC basis include Luxembourg.

In contrast, the United States, Austria, Germany and

Denmark are all more important sources of direct

investment in Estonia than the standard presentation

would indicate.




assets or liabilities to the

reporting economy.

Balance of Payments

(BOP): records transactions

between residents of a

country and the rest of the

world.

International Investment

Position (IIP): records the

value of claims (or assets) of

residents of an economy on

the rest of the world and

their liabilities to the rest of

the world.

Special Purpose Entity

(SPE): an entity with little or

no physical presence in the

country but that do provide

services to the MNE, such

as holding assets and

liabilities or raising capital.

Fellow enterprises:


direct investment



common.

Ultimate investing

country: the country of the

investor that ultimately

controls the investment,

bears the risks, and reaps

the rewards.


27

Examples of how to use and interpret FDI

statistics

The recommendations in BMD4 make FDI statistics more useful for

macroeconomic analyses and for analysing the activities and motivations for FDI.

The presentation of the aggregate statistics on an asset/liability basis makes the

FDI statistics comparable to other items in the BOP and IIP statistics, supporting

macroeconomic analyses. Recommending that countries that host SPEs compile

FDI statistics excluding resident SPEs removes the double-counting that results

from capital-in-transit through these SPEs, providing more accurate statistics on

FDI into these countries and originating from these countries. The statistics better

capture the direction and degree of influence by the direct investor by extending

the directional principle to the treatment of debt between fellow enterprises. The

recommended supplemental series focus on highlighting specific aspects of FDI,

including by the ultimate investing country.

There are several different ways that FDI statistics can be used. The discussion

below begins with the uses for the two different bases for measuring aggregate

FDI statistics: asset/liability and directional. It then discusses the detailed

statistical series on flows and stocks and what can be learned from them,

particularly, for example, by examining equity and debt separately. Finally, it

provides examples of useful indicators that can be created with FDI statistics and

how they can be interpreted. This last discussion is organised around common

questions asked about direct investment.

Asset/liability versus directional principle

Aggregate statistics are available on both the asset/liability and the directional

basis. The asset/liability basis classifies financial and income flows and positions

according to whether the direct investment transaction or position is an asset or a

liability to the reporting economy. This is in contrast to the directional principle

which classifies the financial and income flows and positions as to whether the

direct investment was by a resident of that economy to another economy

(outward) or was an investment by a foreign resident into the economy (inward).

Which of these two measures is best to use depends on the purpose of the

analysis.

The asset/liability presentation puts the FDI statistics on the same basis as other

statistics in the BOP and IIP accounts. As such, these statistics are most


28

appropriate for macroeconomic analyses. In addition, using the statistics including

resident SPEs is recommended for such macroeconomic analyses because the

transactions of SPEs are an integral part of the MNE’s financial transactions and

positions and excluding them would severely understate direct investment

financial flows and positions at aggregate levels for a given country. The inclusion

of these entities promotes symmetry and consistency across countries. For

example, looking at the impact of direct investment on the current account of a

country, it would be best to use direct investment income receipts and payments

measured on an asset/liability basis including resident SPEs. Similarly, comparing

direct investment stocks and financial flows to portfolio investment can provide

insights into the attractiveness of the economy to direct investors, who are

interested in making long term investments that involve undertaking

management of the company and likely results in technology transfer and other

spill-overs, compared to portfolio investors, who are interested in earning more

passive investment income.3

The aggregate statistics on a directional basis are useful for examining the

motivations and impacts of FDI. It is generally best to use the statistics excluding

SPEs because they better represent the actual investment into and out of a

country and, thus, the FDI that is more likely to have a significant impact on the

economy. The detailed statistics by country and industry on the directional basis

are most useful for examining questions, such as which countries are the most

important sources of direct investment in the reporting economy and which

industries they are investing in.

Flows and stocks

Financial flows capture the amount of direct investment in a specific time

period—usually a quarter or a year. Similarly, income flows capture the return

earned on direct investment during a specific time period. In contrast, stocks

capture the cumulative value of direct investment over time. As such, flows are

useful for assessing recent developments in foreign direct investment. For

example, financial flows give an indication of the amount of investment direct

investors are undertaking at a given point in time, so the direction of change in

these flows can indicate whether the investment climate is improving or not.

3 For more information on BOP analysis, see BPM6.


29

Financial flows consist of three components: equity capital, reinvestment of

earnings, and intercompany debt. Equity capital is often associated with new

investments, such as greenfield or M&As, even though it can also reflect

extensions of capital or financial restructuring. Nevertheless, equity capital flows

are often taken as a sign of the amount of new investments related to FDI.

Reinvestment of earnings is the portion of earnings that the parent decides to

reinvest in the affiliate rather than receive as a dividend and can be an important

source of financing for affiliates. This component of financial flows tends to be the

least volatile. Changes in the reinvestment of earnings reflect both changes in the

earnings of affiliates and in the amount of earnings that parents choose to

distribute. The reinvestment ratio is the share of earnings that the parent

reinvests. It can be an indication of the parent’s perception of investment

opportunities available to the affiliate: if the parent sees the opportunity to make

profitable investments in its affiliates, the parent might choose to reinvest more

money in them. However, many other factors can influence the share of earnings

reinvested. For example, if the parent is in need of cash, they might pay higher

dividends. The third component of financial flows—intercompany debt–is the

most volatile component of financial flows and is often driven by the short term

financing needs within a company rather than larger overall macroeconomic

phenomena. As such, intercompany debt is often the most difficult aspect of

financial flows to explain. They can switch direction as large loans are received

and then paid off. Examining the components of financial flows is important

because it can provide insights into the nature of FDI. For example, a drop in

inward investment due to repaying an intercompany loan is interpreted

differently from a drop in inward investment due to a drop in equity capital flows.

Income flows include income earnings on equity and debt. Income on equity is the

earnings of the affiliate, and income on debt is interest receipts and payments

associated with intercompany debt. Changes in income, particularly earnings,

reflect changes in the profitability of affiliates. As will be discussed below, when

compared to the size of the investment position, earnings can show the return on

the investments made by the parent in the affiliate.

Positions are the accumulated value of direct investments measured at a specific

point in time, such as the end of a quarter or of a year. The proper valuation is

market value which values all of the investments made over time at current

period prices. If another valuation is used, it misstates the value of the position

and likely misstates the value of older investments more as the value of


30

investments tend to rise over time. The change in the position from one point in

time to the next is due not only to the financial flows during the period but also to

changes in prices, exchange rates, and other changes in value, such as the write-

down of assets. The inward position indicates the overall value of foreign direct

investors’ investment in the reporting economy, and the outward position

indicates the degree of penetration of resident direct investors in foreign

countries. Positions are often used as a base for calculations of things like return

on investment or in indicators. Looking at how the position has changed over

time, gives an indication of structural changes in the economy, such as opening up

to foreign investment.

Indicators

This section gives some examples of indicators that can be constructed using FDI

statistics. The discussion is organised around common questions about FDI.

How important is FDI to a particular economy? To what extent is an economy globalised through FDI?

These two questions are related because they both ask what role FDI plays in

host and home countries. The statistics on a directional basis excluding resident

SPEs are best to use in answering these questions because they distinguish

between inward and outward investment and because they exclude funds that

are simply passing through the economy on their way to another destination via

SPEs.

A common way to judge the importance of FDI to an economy is to compare the

size of the outward and inward financial and income flows and positions to GDP.

By normalising these measures by GDP, it allows for comparisons across countries.

Such measures show the extent of globalisation through FDI at a given point in

time. For example, the ratio of inward direct investment financial flows to GDP

shows the relative attractiveness of the economy to FDI for that time period, and

the ratio of inward and outward stocks to GDP shows the extent of globalisation

of the economy at a point in time. Looking at how these indicators change over

time can shed light on the role of FDI in globalizing the economy over time and

can provide information on structural changes in direct investment, such as

greater openness to foreign investment. Looking at stocks can give a clearer

picture as flows can be significantly affected by one-time events.


31

GDP is often used to normalize FDI flows and stocks

because it is widely available on a timely basis.

However, there are other statistics that can provide

meaningful measures of the importance of FDI to an

economy, including inward investment as a share of

gross fixed capital formation. However, care should be

taken in interpreting this ratio as FDI flows may be

related to changes in ownership of existing capital

rather than the formation of new capital, such as with

mergers and acquisitions.

Which countries are the most important sources of direct investment in a country? Which countries are the most important destinations of direct investment for a country?

It is possible to construct an indicator showing inward investment for a particular

country over total inward investment. These can be constructed with either

financial flows or positions, depending on the question; if the question is which

country is the most important source of FDI in a specific period, say the most

recent quarter, then flows can be used. If instead the question is asking for the

most important investing countries on a long term basis, then positions should be

used. For inward investment, there are two possible series that can be used to

answer this question. The first is the standard series by immediate partner

country; it is the most widely available. The second is the supplemental series by

ultimate investing country. The latter series is preferable because it identifies the

country of the investor who ultimately controls the investment, but it is not as

widely available and is available for positions only.

For outward investment, it is also possible to construct an indicator showing

investment in a particular country over total outward investment. Again it is best

to use directional statistics excluding resident SPEs. However, these statistics will

not give a very precise picture when parents in a country channel FDI through

SPEs in other countries. The destination of outward investment would be shown

best by statistics by the ultimate host country, but such statistics are not yet

available. (See the section on “OECD research to further improve the

measurement of foreign investment” for more information on statistics looking

through non-resident SPEs and by ultimate host country.)

Gross fixed capital

formation: a national

economic account concept

that measures the value of

producers’ net acquisition of

fixed assets, which are

assets used in production.

Fixed assets include

structures, equipment, and

intangible assets.


32

Which industries are most important for direct investment?

This can be answered using the standard series by industry of the affiliate and

constructing indicators as discussed above for identifying the most important

countries for FDI. However, the outward investment statistics may give a distorted

picture of the most important industries if parents are channelling their FDI

through non-resident SPEs.

How do the rates of return on FDI compare to the domestic economy and to other types of investment?

The rate of return is an indication of the profitability of an investment. The

simplest way to calculate the rate of return is as earnings compared to the stock

of investment. It is possible to compare the rates of return on both outward and

inward investment to rates of return in the domestic economy as a whole to see

how they compare to all businesses for a country. This can also be done by

industry. Looking at rates of return over time can indicate whether investments in

resident enterprises are becoming more profitable and whether those enterprises

are becoming more competitive, but it is important to note that cyclical or

structural factors can affect rates of return.

It is also possible to compare rates of return on FDI to other types of investment,

such as portfolio investment. For these comparisons, FDI statistics on an

asset/liability basis rather than the directional basis should be used.


33

Related data sets

There are two other data sources that capture other aspects of international

investment by MNEs. The first are Activity of Multinational Enterprises (AMNE)

statistics, and the second are international mergers and acquisitions (M&A) data.

Activity of multinational enterprises statistics

AMNE statistics provide information on the financing and

operations of MNEs.4 They consist of variables measuring their

operations, such as turnover (sales), employment, and value

added. Generally, the entities covered in AMNE statistics are

considered to be a subset of those covered by FDI statistics

because they cover only controlled affiliates. However, the

AMNE statistics can be considered as having broader coverage

in a couple of ways. First, they usually include SPEs because

SPEs are important providers of services within the MNE.

However, given the nature of SPEs, their inclusion will have

little impact on many of the variables included in AMNE

statistics, such as employment. Second, AMNE statistics cover the full value of the

variables for the MNE. FDI statistics, on the other hand, just represent the

parent’s claims on the affiliate and, so, are adjusted by the parent’s share of the

equity in the affiliate.

There are certain AMNE variables that capture information on the investments of

MNEs. For example, AMNE statistics may include information on capital

expenditures, which cover investments in new property, plant, and equipment,

and on R&D expenditures, which capture some investments into the creation of

intangible assets.

AMNE statistics are becoming more useful as the number of countries compiling

them increases, and the international standards for compiling AMNE statistics

improve. There are things that could make these statistics even more useful,

including further developing links between FDI and AMNE statistics as is being

done in research conducted by the OECD Working Group on International

4 There is a closely related dataset, Foreign AffiliaTe Statistics or FATS, that also provide information

on the financing and operations of MNEs. While they include similar data, AMNE statistics are generally considered to be more comprehensive because they cover the activities of parent companies as well as affiliates while FATS focuses on the affiliates.

Controlled affiliates:

affiliates owned more

than 50% by the foreign

parent.

Special Purpose Entity

(SPE): an entity with little

or no physical presence

in the country but that do

provide services to the

MNE, such as holding

assets and liabilities or

raising capital.


34

Investment Statistics (see the section “OECD research to further improve the

measurement of foreign investment”). Linking AMNE data to other data sources,

such as to data on patents and trademarks, on employment, and on trade, would

further enhance the usefulness of these data.

International mergers and acquisitions data

Data on international M&As are available from private sources. They are the most

timely information available on international investments by MNEs, and they are

not subject to many of the confidentiality restrictions of FDI statistics from

countries because they are corporate events, which means more detail on the

transactions are often available. International M&A statistics are not consistent

with FDI concepts because they include the full financing of the merger or

acquisition and not just the portion attributable to the direct investor, and

because they do not capture FDI financial flows not due to M&As, such as the

reinvestment of earnings, capital contributions, and most intercompany loans.

Nor do they cover income flows or positions. There are no standards for compiling

these statistics, so the methodologies may vary from provider to provider.

Nevertheless, the FDI financial flows and international M&A data do tend to track

together at the global level, so these data can give an indication of the direction of

change in FDI flows for a specific period. Finally, they also often provide

information on the ultimate investor and ultimate host of investment that can be

obscured in FDI statistics if the parent chooses to channel its direct investment in

the affiliate through another country.


35

OECD research to further improve the

measurement of foreign investment

At the time that BMD4 was published, there were several items left on the

research agenda. These were classified into several broad issues affecting FDI

statistics. Below each of these issues is described as well as progress that has

been made in addressing them, if any, since BMD4 was published.

Capital in transit

Capital in transit is financing that flows through multiple entities before reaching

its final destination. It leads to double-counting of FDI financial flows as well as of

income and positions. It affects the geographical and industrial distribution of all

direct investment statistics. The exclusion of resident SPEs is an important step to

removing capital-in-transit from both the inward and outward investment of FDI

statistics for countries that are host to a significant number of SPEs. To remove all

capital-in-transit from FDI statistics, a method to segregate capital-in-transit

flowing through operating affiliates needs to be developed. In addition, the

guidance for compiling FDI statistics will need to be maintained and updated in

light of developments and innovations in international finance.

Ultimate host country

The counterpart to the statistics by UIC would be a presentation by the ultimate

host country. Compiling statistics according to the ultimate host country would

present a more accurate picture of where investors from particular countries are

investing and the industries that they are investing in. BMD4 did not provide any

guidance or methodology for compiling statistics according to the ultimate host

country because substantial conceptual issues remain. These issues include the

difficulties in linking specific sources of funding with specific uses and the fact that

direct investments made by intermediate enterprises in ownership chains may

reflect that not only funding provided by their direct investors, but also funding

that these enterprises may have obtained from other sources, such as local

owners or lenders. Research will focus first on clarifying the concept of ultimate

host country to determine if it is feasible to develop methods to allocate outward

investment positions and transactions to ultimate host countries.

Links between FDI statistics and other statistics on MNEs

While FDI statistics are crucial to understanding the direct investment relationship

and provide important insights into the economic linkages between economies,


36

additional statistics are necessary to place these statistics into context, to describe

the enterprises in which there is direct investment, measure their activities, and

assess their economic impact. Such complementary statistics are required to

underpin analyses of the globalisation of production through FDI. AMNE statistics

provide such additional statistics.

While both FDI and AMNE statistics cover aspects of the operations of MNEs, they

are not based on compatible statistical concepts and definitions, and, therefore,

cannot be used in tandem. To use them together requires eliminating the

methodological differences which exist between the financial and economic

measures of MNEs and developing a comprehensive analytical framework. The

OECD Working Group on International Investment Statistics has developed a

framework, called the MNE framework, which reconciled the differences in

concepts and definitions to provide a workable way of using the two sets of data

in tandem.

The MNE framework combines information on cross-border financing from the

FDI statistics with information on third party financing, including local financing,

and on total assets from the AMNE statistics to provide a complete picture of the

financial structure and financing of the MNE. The MNE framework is also a

statistical framework that combines financial and economic variables of MNEs so

that the links between their financing and real activities can be examined. The

OECD is exploring the feasibility of collecting data using the MNE Framework.


37

Why the OECD produces the Benchmark Definition of Foreign Direct Investment

FDI is a key driver of international economic integration. With the right policy

framework, FDI can provide financial stability, promote economic development and

enhance the well-being of societies. Reliable FDI statistics have always been

essential for policy makers faced with the challenges of attracting and making the

most of international investment. In the early 1980s, the OECD recognised that

traditional reporting models could not account for the removal of regulatory

barriers for cross-border investments, the evolution of multinational enterprises,

and the increasing complexity of their financing through offshore tax jurisdictions

and other arrangements. As a result, in 1983, the OECD adopted a new "Benchmark

Definition of Foreign Direct Investment" which provided a comprehensive set of

rules to improve statistical measures of foreign direct investment.

However, the financing structures of multinational enterprises and other business

combinations have continued to evolve in an increasingly globalised market. To

adapt the statistical measures to changing economic and financial realities, the

OECD adopted in 2008 the 4th edition of the Benchmark Definition of Foreign

Direct Investment which sets the world standard for FDI statistics. The 4th edition

of the Benchmark Definition serves as a single point of reference for all that is

related to FDI and its measurement.

The 4th edition of the Benchmark Definition of Foreign Direct Investment was the

result of the work by the Working Group on International Investment Statistics,

representing the international community of FDI statisticians and chaired by Mr.

Roger De Boeck. The work was undertaken at the request of the OECD Investment

Committee and in co-operation with the IMF and other partner international

organisations. It was supported by material prepared by the Secretariat of the

Working Group, Ayse Bertrand, Senior Statistician in the OECD Investment Division

headed by Pierre Poret in the Directorate for Financial and Enterprise Affairs.

Measuring International Investment

by Multinational Enterprises

www.oecd.org/investment/statistics.htm

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